African Diaspora Mar. Corp. v. Golden Gate Yacht Club

• Decision Date: 25 June 2013
• Citation: 109 A.D.3d 204,968 N.Y.S.2d 459,2013 N.Y. Slip Op. 04752
• Parties: AFRICAN DIASPORA MARITIME CORPORATION, Plaintiff–Appellant, v. GOLDEN GATE YACHT CLUB, Defendant–Respondent.
• Court: New York Supreme Court — Appellate Division

109 A.D.3d 204
968 N.Y.S.2d 459
2013 N.Y. Slip Op. 04752

AFRICAN DIASPORA MARITIME CORPORATION, Plaintiff–Appellant,
v.
GOLDEN GATE YACHT CLUB, Defendant–Respondent.

Supreme Court, Appellate Division, First Department, New York.

June 25, 2013.

[968 N.Y.S.2d 460]

McDermott Will & Emery LLP, New York (Andrew B. Kratenstein, Banks Brown and Audrey Lu of counsel), for appellant.

Boies, Schiller & Flexner LLP, New York (Philip M. Bowman and Julia C. Hamilton of counsel), for respondent.

PETER TOM, J.P., ROLANDO T. ACOSTA, PAUL G. FEINMAN, DARCEL D. CLARK, JJ.

ACOSTA, J.

[109 A.D.3d 206]The primary issue in this case is whether plaintiff, which submitted a timely application to compete in the upcoming America's Cup sailing regatta and was rejected, sufficiently pleaded a breach of contract claim to survive a CPLR 3211 motion to

[968 N.Y.S.2d 461]

dismiss. Although defendant, the current trustee of the trophy, has discretion in selecting the defender, we find that plaintiff has alleged the existence of an enforceable contract between the parties and bad faith on defendant's part sufficiently to state a breach of contract cause of action. Contrary to the dissent's position, given the rules of the race, submission of an entry application with the appropriate fee binds defendant to review the application in good faith, and its failure to do so is a breach of contract. Whether plaintiff can ultimately establish its claim is irrelevant at this juncture since the sole consideration on a CPLR 3211 motion is whether the complaint sufficiently states a cause of action.

The America's Cup is governed by a Deed of Gift. The Deed of Gift is a trust instrument executed under the laws of New York State. The corpus of the trust is the well-recognized trophy, simple possession of which spurs the sailing competition.

Since the 1970s, the America's Cup has allowed boats from multiple nations to participate in America's Cup events. A formal, initial “Challenger” triggers each competition for the Cup. In accordance with the Deed of Gift, the winner of the preceding competition (the Defender) and the Challenger must agree on rules, i.e., a protocol, for the next competition. Accordingly, defendant, Golden Gate Yacht Club (GGYC), the winner of the 33rd America's Cup held February 14, 2010, and the nonparty Club Nautico di Roma (CNR), the challenger, agreed on “The Protocol Governing the 34th America's Cup” (the Protocol). Pursuant to the Protocol, additional participants from countries other than the country that holds the Cup are candidates for “Challenger”; additional participants from the country that possesses the cup are called “Defender–Candidates.” Challenger candidates, as well as the Challenger, must engage in an elimination series called the “Louis Vuitton Cup” to determine which single boat, from a single foreign country, may vie to compete against the Defender for the Cup. Similarly, [109 A.D.3d 207]Defender candidates, potentially including the last winner of the Cup, may (but are not required to) have their own elimination series to determine which organization's boat will represent the Defender's interest in a scheduled America's Cup event.¹ “Defender Candidate” is defined as “a team selected by GGYC to participate in the America's Cup Defender Series, if any.”

Pursuant to the Deed of Gift, the Protocol states that the holder of the Cup (i.e., GGYC) acts as “trustee” in managing the Cup event, and must “act in the best interests of all Competitors collectively” and “not unreasonably favor the interests of any Competitor over another.”

Plaintiff African Diaspora Maritime Corporation (ADM), a sailing organization based in North Carolina, alleges that on or about July 7, 2010, it contacted GGYC to inquire about applying to become a Defender Candidate in the 34th Cup. ADM was allegedly instructed by GGYC to contact the chairman of the America's Cup Committee, Tom Ehman. ADM claims that GGYC had already formed a “Competitor Forum” (for the purpose, as defined in the Protocol, of “consultation and

[968 N.Y.S.2d 462]

communication with Competitors) and could have put ADM in contact with its liaison to the Competitor Forum, Anthony Romano. Instead, ADM claims that between July 8, 2010 and March 26, 2011, it contacted GGYC, through Ehman, on a monthly basis, seeking information about becoming a Defender Candidate. ADM alleges that GGYC exhibited a pattern of continuing avoidance, providing it with little information until it was almost too late for ADM to enter the 34th Cup as a Defender Candidate. On March 26, 2011, GGYC referred ADM to Romano, and Romano provided ADM with information critical to its application, which allegedly had been made available to the Competitor Forum months earlier.

On March 31, 2011, just one day before the deadline, ADM was able to submit an application to be considered as a Defender Candidate for the 34th Cup. Along with its application, ADM paid the required $25,000 fee.

The Defender Application states in relevant part:

“(2) The Defender Candidate by this Notice hereby challenges for the 34th America's Cup in accordance with the Protocol Governing the 34th America's Cup dated 31 August 2010 as amended. The Defender Candidate hereby agrees to be bound by and undertakes to comply with the terms of the said Protocol [109 A.D.3d 208]and all other rules set forth in its Article 11, and any amendments to the Protocol or those rules.

“(3) Details of the Defender Candidate's corporate structure, registered business address and team management. We agree to provide further details of our challenge as GGYC may request to review and consider this application.”

In paragraph (4) the Defender Application provides in relevant part that the Defender Candidate is bound by the terms of the Deed of Gift, the Protocol, and documents that are noted in Article 11 of the Protocol.

Article 8 of the Protocol, called “Acceptance of Defender Candidates,” provides:

“8.1 GGYC will accept applications to be a Defender Candidate from 1 November 2010 until 31 March 2011. There after, applications may be accepted at the discretion of GGYC upon such terms as it may determine.

“8.2 Defender Candidates shall comply with the Protocol and shall submit the documents and fees as set out in Article 9.

“8.3 GGYC will review Defender Candidate applications and will accept those it is satisfied have the necessary resources (including but not limited to financial, human, and technological) and experience to have a reasonable chance of winning the America's Cup Defender Series.”

ADM alleges that from April 1, 2011 through April 15, 2011, GGYC falsely and repeatedly claimed that its application was deficient due to the lack of a signature and the lack of a document that evidenced payment of the $25,000 fee.

ADM alleges that it met all other application requirements, inasmuch as it had, inter alia: (1) assembled a qualified sailing team; (2) secured the services of a renowned boat designer (Dave Pedrick); (3) lined up commitments of “several wealthy African–Americans” to fund ADM's pursuit of a defender opportunity; (4) organized “a plan” with North Carolina's Secretary of Commerce and the State's Department of Tourism “to build a ‘boat park’ in Raleigh”; and (5) had “detailed plans ... to create a media frenzy around its team (for both publicity and fundraising efforts).” As for its sailing team, ADM alleges that it included “three

[968 N.Y.S.2d 463]

Olympians, an All–American, [and] several additional[109 A.D.3d 209]talented, experienced, and award-winning sailors.” Further, ADM alleges that other “world class African–American sailors intended to join ADM's campaign” if “GGYC accept[ed] ADM as a Defender Candidate.” ADM alleges that Pedrick is “an America's Cup award-winning yacht designer.”

ADM further alleges that GGYC informed it that since ADM did not have a contract with Pedrick (Pedrick had conditioned his participation with ADM on ADM's obtaining Defender Candidate status), the information in its application was not accurate. ADM alleges that GGYC's objections to its application were “technical objections” that were “groundless.” For instance, ADM alleges, GGYC “twist[ed]” Pedrick's statement that he had a conditional arrangement with ADM to mean that Pedrick had “denied” his association with ADM. ADM alleges that emails from Pedrick to ADM, as well as an April 15, 2011 email from Pedrick to GGYC, establish Pedrick's intent to design for ADM.

By letter dated April 15, 2011, GGYC advised ADM that its application had been rejected. According to ADM, GGYC's stated reason was that it was “not satisfied that ADM has, or will have the necessary resources (including but not limited to financial, human, and technological) and experience to have a reasonable chance of winning the America's Cup Defender Series.”

In December 2011, ADM commenced this action against GGYC alleging three causes of action: (1) breach of contract; (2) breach of trust; and (3) breach of fiduciary duty. With respect to the breach of contract claim, the complaint alleges that a contract was formed between ADM and GGYC when ADM accepted GGYC's offer/invitation to participate as a Defender Candidate. ADM asserts that its submission to GGYC of a completed Defender Candidate application, together with the $25,000 required under the Protocol, constituted an acceptance of the Defender Candidate offer, and that GGYC's failure to review the application in good faith breached the contract.

ADM alleges that GGYC had no basis to claim a lack of “satisfaction” with its application, since ADM stated that it would provide further details upon request, and GGYC never attempted to verify the status of ADM's team, its proposed funding sources, or its proposed team's experience. ADM alleges that GGYC knew that potential competitors typically do not draw funding until they are granted competitor status. ADM also alleges that GGYC had provided material and financial help to [109 A.D.3d...